The link between government spending cuts and social unrest is highly non-linear and extremely troublesome.
We first noted the must-read quantification of the relationship between so-called CHAOS of social unrest and spending cuts back in early January and this brief lecture reiterates some of the frightening conclusions. Critically, small spending cuts impact social unrest in very marginal ways but once the cuts begin to rise to 2-3% of GDP then the probability of considerable and painful social unrest becomes much higher. As Hans-Joachim Voth points out in this INET lecture, analogizing between…

As the next INET conference begins in Germany, one topic of conversation is sure to be George Soros’s piece
discussing the Eurozone crisis. He points out that the Eurozone has been quietly restructuring its financial arrangements along national lines, ending an era of co-mingled assets and liabilities across national borders. This is something I hadn’t realized, but it presents, as he shows, other dangers…

I’m in Berlin this week, at the annual
INET meetings, where the big theme this year seems to be an attempt to rope in everyone from anthropologists to neuroscientists in an attempt to solve the big economic problems which are proving intractable to economists. But still, it’s the economics and finance folk who are top of the agenda. And since George Soros is footing a large part of the bill for this conference, he and his latest op-ed are getting star billing. Sadly, however, most of the delegates have been at the conference all day and therefore haven’t had the opportunity to read Mohamed El-Erian’s speech in St Louis, which is equally germane.

The two, in fact, complement each other quite nicely. El-Erian’s main point…

“I would also like to point out that it is not just new thinking that we need. Rather, it is often equally important to recall older ideas and approaches that may have fallen out of the limelight in the meantime. For example, we in Germany have sharpened our focus on the necessity of pursuing economic and fiscal policies that are consistent with the principles of markets and competition — what we call Ordnungspolitik. This approach…”

If I read my Twitter feed correctly, Jorg Asmussen, the German representative on the European Central Bank’s executive board, thinks that the ECB has already played its part as far as saving the euro is concerned with last December’s LTRO intervention; it’s now up to national governments to complete the process, he says, by undertaking the necessary structural reform (Mr Asmussen has been speaking at the Institute for New Economic Thinking conference in Berlin). As is becoming ever more common when it comes to euroland, it’s a view which is quite at odds with the facts. True enough, the ECB’s…

Spanish economic historian Hans‐Joachim Voth has discovered a stronger link than anyone realized between austerity and civil unrest. Which of course is terrifying as we enter the
Age of Austerity.

In a presentation at the
Institute for New Economic Thinking, Voth compared historical changes in government spending to an indexed measure of “Chaos”—anti‐government demonstrations, riots, assassinations, general strikes and attempted revolutions. He found that declines in government spending lead to chaos.

— He warns that austerity measures in Greece go too far and make the situation worse

— Says cuts might also go too far in Spain

BERLIN (Dow Jones)—The euro zone must focus more strongly on boosting growth to overcome its debt crisis because austerity measures such as those in Greece are going too far and won’t generate the desired result, said William White, one of the few policy makers to correctly predict the onset of the financial crisis.

There is a growing student protest movement against orthodox economics that could change the field as we know it.

If it is sustained, historians likely will cite Nov. 2, 2011, as the start of the revolution. On that day at
Harvard University, roughly 70 students organized a walkout of an introductory economics class taught by N. Gregory Mankiw.